This is a common concern of all businesses who are trying to generate and increase sales. I have seen so many people who throw money at this problem without having a clue what the outcome would be.
When I was in business school, we had a guest lecturer who was the retiring CEO of the Bank of America and I asked him the same question. He said 2% of gross sales and that’s what I might expect a conservative businessman to say.
For starters, I always say, “It depends.” The situation varies from business to business and from market to market and depends on the competition as well as several other factors. I’ve watched too many small businesses go under because they had no budget at all. They spent advertising money based on their gut feelings. If you would like to avoid that outcome, I recommend the article at the end of this story by Roy H. Williams, for a great example of exactly what you can afford. And that’s the message here, you should not spend more than you can afford. Just like your budget at home, you must take more in than you send out.
Having a plan and stated goals will make it easier to create your budget. Budgets for advertising and promotion usually are broken into different segments and are based on the kind of business and the greatest influencers of customers in your target market. If you absolutely have to come up with a number immediately, stick to the 2%. You will see, after reading the article at the end of this, that if you stick to 2%, chances are, you will not be spending too much.
2% of a small number, isn’t very much, so that will certainly limit what you can spend it on. The better your system of capturing what caused your customers to buy, the less risk you will be taking. If you like to gamble, all bets are off.
Calculating you ad budget Ad Budget Calculation by Roy H. Williams